After Airline Deregulation and Alfred E. Kahn

By Nancy L. Rose

American Economic Review, May 2012

Among Alfred E. "Fred" Kahn's many accomplishments, none is better remembered than his pivotal role in deregulation of the US airline industry. Kahn's commitment to marry core microeconomic principles with institutional analysis, willingness as Chairman o...

Dynamic Pricing of Electricity

By Paul L. Joskow and Catherine D. Wolfram

American Economic Review, May 2012

As both a regulator and an academic, Fred Kahn argued that end-use electricity consumers should face prices that reflect the time-varying marginal costs of generating electricity. This has been very slow to happen in the US, even in light of recent techno...

Telecommunications Deregulation

By Jerry A. Hausman and William E. Taylor

American Economic Review, May 2012

From Fred Kahn's writings and experiences as a telecommunications regulator and commenter, we draw the following conclusions: prices must be informed by costs; costs are actual incremental costs; costs and prices are an outcome of a Schumpeterian competit...

Government Policy for a Partially Deregulated Industry: Deregulate It Fully

By Clifford Winston

American Economic Review, May 2012

Alfred Kahn was a major force behind regulatory reform that initially benefited air travelers and subsequently consumers in other industries by placing greater reliance on markets than on regulators to allocate resources. Kahn also believed that effective...

Global Supply Chains and Wage Inequality

By Arnaud Costinot, Jonathan Vogel, and Su Wang

American Economic Review, May 2012

A salient feature of globalization in recent decades is the emergence of "global supply chains" in which different countries specialize in different stages of a sequential production process. In Costinot, Vogel and Wang (2011) (CVW hereafter), we have dev...

Sustaining Production Chains through Financial Linkages

By Se-Jik Kim and Hyun Song Shin

American Economic Review, May 2012

The technological constraints on sustaining production chains have been discussed extensively by development economists, but the role of financial linkages has received less attention. In a model of recursive moral hazard for a manufacturing supply chain,...

Proximity and Production Fragmentation

By Robert C. Johnson and Guillermo Noguera

American Economic Review, May 2012

Cross-border production chains tend to include geographically proximate countries. This suggests that increases in fragmentation should be largest among nearby trading partners, and thus may serve to localize gross trade. Using data on gross and value add...

Measuring the Upstreamness of Production and Trade Flows

By Pol Antràs, Davin Chor, Thibault Fally, and Russell Hillberry

American Economic Review, May 2012

We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related...

Trade, Labor Market Frictions, and Residual Wage Inequality across Worker Groups

By Pravin Krishna, Jennifer P. Poole, and Mine Zeynep Senses

American Economic Review, May 2012

Using a matched employer-employee data set, we study the effects of trade liberalization on wage dispersion in Brazil across heterogeneous worker groups, keeping in mind that the assignment of workers to firms may be non-random and determined by the time-...

Offshoring, Transition, and Training: Evidence from Danish Matched Worker-Firm Data

By David Hummels, Jakob R. Munch, Lars Skipper, and Chong Xiang

American Economic Review, May 2012

We combine matched Danish worker-firm-trade data with detailed individual-worker training data. We find: 1) workers displaced from offshoring firms take up more vocational-training and have a harder time getting re-attached to the labor-force than other d...

Liberalized Trade and Worker-Firm Matching

By Carl Davidson, Fredrik Heyman, Steven Matusz, Fredrik Sjöholm, and Susan Chun Zhu

American Economic Review, May 2012

Recent theoretical analysis suggests that a reduction in the cost of exporting increases the degree of assortative matching between workers and firms in export-oriented industries. Changes that reduce the cost of imports have an ambiguous impact on matchi...

Exports and Within-Plant Wage Distributions: Evidence from Mexico

By Judith A. Frías, David S. Kaplan, and Eric Verhoogen

American Economic Review, May 2012

This short paper examines the effect of exporting on within-plant wage distributions in employer-employee data on Mexican manufacturing plants. Using the late-1994 peso devaluation interacted with initial plant size as a source of exogenous variation in e...

Village Economic Accounts: Real and Financial Intertwined

By Archawa Paweenawat and Robert M. Townsend

American Economic Review, May 2012

We propose a framework to create village economic and balance of payments accounts from a micro-level household survey. Using the Townsend Thai data, we create the accounts for villages in rural and semi-urban areas of Thailand. We then study these villag...

Innovation in Space

By Klaus Desmet and Esteban Rossi-Hansberg

American Economic Review, May 2012

This paper shows how competition for land may lead firms to optimally innovate in spite of the market being perfectly competitive. When bidding for a location, firms can enhance their bid by investing in innovations that make the land more valuable. Firms...

Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence

By Arnaud Costinot and Dave Donaldson

American Economic Review, May 2012

When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of com...

Tariff Revenue and Tariff Caps

By Manuel Amador and Kyle Bagwell

American Economic Review, May 2012

We characterize the design of an optimal trade agreement when governments are privately informed about the value of tariff revenue. We show that the problem of designing an optimal trade agreement in this setting can be represented as an optimal delegatio...

Profits in the "New Trade" Approach to Trade Negotiations

By Ralph Ossa

American Economic Review, May 2012

I highlight two advantages of adopting a "new trade" approach to trade negotiations. First, it allows for a view of trade negotiations in which producer interests play a prominent role. And second, it lends itself naturally to quantitative analyses of non...

Trade Agreements and the Nature of Price Determination

By Pol Antràs and Robert W. Staiger

American Economic Review, May 2012

According to the terms-of-trade theory, negotiations over tariffs alone, coupled with an effective market access preservation rule, can bring governments to the efficiency frontier. In this paper, we show that the nature of international price determinati...

On the Use of Holdout Samples for Model Selection

By Frank Schorfheide and Kenneth I. Wolpin

American Economic Review, May 2012

Researchers often hold out data from the estimation of econometric models to use for external validation. However, the use of holdout samples is suboptimal from a Bayesian perspective, which prescribes using the entire sample to form posterior model weigh...

Prediction with Misspecified Models

By John Geweke and Gianni Amisano

American Economic Review, May 2012

The assumption that one of a set of prediction models is a literal description of reality formally underlies many formal econometric methods, including Bayesian model averaging and most approaches to model selection. Prediction pooling does not invoke th...